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Australian Dollar Advances a Second Day as China Funding Crisis Eases

06/26/2013 | 01:15am US/Eastern
  • Dollar Steadies Even as S&P 500 Rebounds, Data Leading to Taper?
  • Australian Dollar Advances a Second Day as China Funding Crisis Eases
  • Japanese Yen: Asia Market Volatility Remains, Stirs Yen Crosses
  • Canadian Dollar the Most Oversold Currency Short Term?
  • Swiss Franc: SNB’s Zurbruegg EURCHF Cap Necessary, Risks Can’t be Hedged
  • British Pound Traders Take Note of King’s Warning that Carney Limited
  • Gold Extends its Plunge to Fresh Multi-Year Lows Overnight

Dollar Steadies Even as S&P 500 Rebounds, Data Leading to Taper?

Both the Dow Jones FXCM Dollar Index (ticker = USDollar) and S&P 500 closed the day higher Tuesday. This counter-fundamental, positive correlation tells us something very important: that the ‘risk aversion’ drive that followed the Federal Reserve’sTaper warningis losing its potency. If risk aversion were truly intensifying, an unwinding of the front-run-the-Fed trades would evolve into a deleveraging of the exposure that was founded on the assumption of boundless support by the central bank. Yet, there is not enough momentum behind this fear to keep US equities – which are arguably the most stubborn benefactor of the ‘more hazard’ – shedding the uncommitted investors as the benchmarks pull back from record highs. This hesitance should not be taken to mean that the danger of a full-scale bear market has been avoided however. Leverage (measured on the NYSE) is at record highs and participation (S&P 500 futures open interest) at 15-year lows.

Australian Dollar Advances a Second Day as China Funding Crisis Eases

Funding pressure in the Chinese markets is a significant threat to financial stability globally, but it is especially troublesome for the Aussie dollar which is exposed through its direct trade exposure as well as its position as the major’s top ‘investment’ currency. The story out of China has developed around a few Chinese banks essentially defaulting on loans due to a severe shortage of short-term funding. This issue has evolved out of regulators cracking down on particular venues for financial institutions to continue to lend out short-term credit at excessive rates in hopes of trying to curb a lending bubble in the economy. The People’s Bank of China (PBoC) voiced confidence that funding risks would be met individually but they wouldn’t lax rules. Shibor lending rates have eased today, and the relief offers further Aussie reprieve.

Japanese Yen: Asia Market Volatility Remains, Stirs Yen Crosses

The Tokyo session is proving to be the more active period for swing traders. While the Nikkei 225 started Wednesday’s session following in the wake of the US equity market’s climb, the Japanese benchmark suffered a severe jolt as trading wore on. The more than 300-point intraday plunge from the stock index may be technically smaller than the near 450-poing tumble the previous session, but it still represents serious volatility issues for the region. And, volatility begets volatility. If the market’s remain this reactive, the proper catalyst to align investors’ concerns can generate a breakout to undermine the past few weeks’ worth of congestion. A bearish break for shares would be a direct spark for yen buying (spark for yen crosses to drop) as it would rouse risk aversion that leads to carry trade deleveraging. Yet, general activity itself – regardless of direction – is also a problem for Asian markets as it volatility is elementally a measure of ‘risk’.

Canadian Dollar the Most Oversold Currency Short Term?Over the past few months, the Australian dollar may have shed more value than any other major currency; but more immediate comparison performance of the past two weeks shows a different scale. Through that period, the FX market’s worst performer has been the Canadian dollar. While the USDCAD’s 3.2 percent advance is most remarkable, the rest of its pairings have delivered the loonie between 1.7 and 1.3 percent in losses. Through that same period, the Canadian data has held up relatively well. Capital inflations, home sales, retail sales and inflation have improved. Furthermore, we have seen net speculative short interest on the Canadian currency via futures positioning on the COT drop 65 percent from a six year low set two months ago. An eight-day straight advance in USDCAD (the longest since 2005) looks stretched.

Swiss Franc: SNB’s Zurbruegg EURCHF Cap Necessary, Risks Can’t be Hedged

EURCHF hasn’t returned to the Swiss National Bank’s (SNB) imposed 1.2000-floor in nine months. However, that doesn’t seem reason enough for the policy authority to lift its backstop on the critical pairing. Governing Council member Fritz Zurbruegg remarked this past session that the barrier is especially necessary considering the stability of the Euro-region is once again at risk. Speaking to regional bankers’ group, Zurbruegg also made note that the SNB’s reserve levels are a result of FX exposure accumulated through monetary policy. Furthermore, he noted that the central bank couldn’t hedge itself of these risks and volatility via the euro or dollar was felt immediately by the group. This may be obvious, but it breaks from the unflappable confidence we expect from central bankers. Is that recognition of the possibility of failure?

British Pound Traders Take Note of King’s Warning that Carney Limited

When Bank of England Governor Mervyn King testified before the Treasury Committee for the last time as the leader of the central bank, he said something sterling traders consider. In a humorous quip, King suggested that while his replacement may be more persuasive than he is; Marc Carney would not likely gain more traction than his predecessor. Each person has one vote under the current regime at the Monetary Policy Committee (MPC); and King has been outvoted in his call for stimulus in the past three policy meetings 3 to 6. The market would do well to remember that Carney can only accomplish so much in his new position without the support of the Committee. Speculation that the BoE will materially upgrade its stimulus efforts to match that of the BoJ, Fed or even ECB has added material weight to the pound. We will see if this reality clears up slowly or all at once on July 4 when Carney casts his first vote. Meanwhile, we should read through the details on the upcoming BoE Financial Stability report. Last week it was suggested that there is a £26 billion hole in bank financing…

Gold Extends its Plunge to Fresh Multi-Year Lows Overnight

Bulls were making a feigned attempt to keep gold above the $1,275 level following last week’s FOMC route. That line in the sand was crossed this morning as the precious metal dropped another 2-plus percent through Asia session trading. The stability of the US dollar through the past session – despite the firming of the US equity markets and thereby sentiment – was one aspect of erosion for the ‘alternative store of wealth’ asset. Yet the real trigger for fresh lows for the metal seems to be the reduced tension in the Chinese funding markets. Without a material and pressing financial stability threat, the task of reviving the fundamental strength of a last resort and heavily pummeled asset like gold is even further out of reach. Meanwhile, volume behind the gold selling may be backing off, but the CBOE’s gold volatility index is still above 25 percent (before April’s market collapse it averaged around 13 percent) and ETF holdings hit yet another multi-year low. In fact, the 1.1 percent drop in the exposure was the second biggest in 22 months and ushered in a fresh 3-year low 66.46 million ounces.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

6:00

CHF

UBS Consumption Indicator (MAY)

1.46

A recent appreciation in the Franc may impact domestic consumption favorably.

6:00

EUR

German GfK Consumer Confidence Survey (JUL)

6.5

6.5

Indicator has been on a steady and sustainable rise since late 2008.

6:45

EUR

French Gross Domestic Product (QoQ) (1Q F)

-0.20%

-0.20%

France will be under pressure to meet or beat expectations as Eurozone fears reemerge.

6:45

EUR

French Gross Domestic Product (YoY) (1Q F)

-0.40%

-0.40%

10:00

GBP

CBI Reported Sales (JUN)

-3

-11

Lows last month were the worst in over a year.

11:00

USD

MBA Mortgage Applications (JUN 21)

-3.30%

Although figures are surveyed to come in unchanged from prior readings, any numbers that beat those expectations will contribute to a USD on the rise as global risk factors and brighter days for the US economy drive the greenback even higher.

12:30

USD

Gross Domestic Product (Annualized) (1Q T)

2.40%

2.40%

12:30

USD

Personal Consumption (1Q T)

3.40%

3.40%

12:30

USD

Gross Domestic Product Price Index (1Q T)

1.10%

1.10%

12:30

USD

Core Personal Consumption Expenditure (QoQ) (1Q T)

1.30%

1.30%

14:30

USD

DOE U.S. Crude Oil Inventories (JUN 21)

313K

Volatility outside the normal ranges has been limited since January in regards to weekly inventory levels.

14:30

USD

DOE U.S. Distillate Inventory (JUN 21)

-489K

14:30

USD

DOE U.S. Gasoline Inventories (JUN 21)

183K

16:00

EUR

French Total Jobseekers Change (MAY)

26

39.8

Disappointments here will add to stresses on the Eurozone outlook.

16:00

EUR

French Total Jobseekers (MAY)

3264.4k

22:45

NZD

Trade Balance (New Zealand dollars) (MAY)

427M

157M

Following strong comments from Wheeler on the NZD, improvements in New Zealand may push the currency higher and test his statements on intervention attempts to devalue the currency.

22:45

NZD

Exports (New Zealand dollars) (MAY)

4.45B

3.95B

22:45

NZD

Imports (New Zealand dollars) (MAY)

4.02B

3.80B

22:45

NZD

Balance (YTD) (New Zealand dollars) (MAY)

-522M

-694M

23:50

JPY

Japan Buying Foreign Bonds (Yen) (JUN 21)

-¥402.5B

Market participants will take note of any greater decrease in the degree to which Japan is putting money abroad. Short term decreases like these have occurred despite calls for capital flight following the BoJ’s massive easing program.

23:50

JPY

Japan Buying Foreign Stocks (Yen) (JUN 21)

-¥129.9B

23:50

JPY

Foreign Buying Japan Bonds (Yen) (JUN 21)

¥313.3B

23:50

JPY

Foreign Buying Japan Stocks (Yen) (JUN 21)

-¥3.6B

GMT

Currency

Upcoming Events & Speeches

9:15

EUR

ECB Announces Allotment of 3-Month Refi Tender

9:30

GBP

BoE Publishes Financial Stability Report

11:30

GBP

UK Chancellor Osborne Announces Spending Review

12:15

EUR

ECB's Joerg Asmussen Speaks on Euro Economy

14:00

USD

Fed's Fisher, Lacker Testify on Financial Stability

15:15

EUR

ECB's Yves Mersch Speaks on Euro Economy

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

15.0000

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.1150

Resist 1

12.9000

1.9000

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.9365

Spot

12.6508

1.8635

9.8671

7.7638

1.2504

Spot

6.4843

5.5860

5.7475

Support 1

12.0000

1.6500

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.7400

Support 2

11.5200

1.5725

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.5000

INTRA-DAY PROBABILITY BANDS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.3471

1.5837

96.50

0.9339

1.0246

0.9728

0.8187

128.84

151.40

Resist. 2

1.3441

1.5805

96.12

0.9312

1.0226

0.9696

0.8159

128.34

150.84

Resist. 1

1.3412

1.5772

95.74

0.9285

1.0207

0.9665

0.8130

127.83

150.29

Spot

1.3353

1.5707

94.98

0.9231

1.0168

0.9602

0.8073

126.82

149.18

Support 1

1.3294

1.5642

94.22

0.9177

1.0129

0.9539

0.8016

125.81

148.08

Support 2

1.3265

1.5609

93.84

0.9150

1.0110

0.9508

0.7987

125.30

147.52

Support 3

1.3235

1.5577

93.46

0.9123

1.0090

0.9476

0.7959

124.80

146.97

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.


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